A beloved crafts retailer is now at high risk of bankruptcy after a filing revealed the company owes over $2 billion in debt.
Joann Fabrics (JOAN) has been a favorite arts and crafts retailer for 80 years, operating 831 stores in 49 states.
However, like many retail store chains, it has struggled to overcome shifting sales trends toward online retailers like Amazon and larger superstores like Walmart while managing rising interest payments on billions of dollars in debt, reports TheStreet.
Sales at the arts and crafts store fell 4% to $540 million in its most recently reported quarter ending October, while its loss per share ballooned to $0.21 from a six-cent per-share profit in the same quarter the previous year.
Given the losses, Joann embarked on a cost-cutting plan to get itself back into the black by reducing costs by up to $225 million.
However, those efforts may not be enough. Behind the scenes, management has been discussing whether bankruptcy will be necessary to get its financial house in order, according to Bloomberg.
As of October 31, the company owed over $2 billion, including $181 million in current debt, and had just $28 million in cash and cash equivalents.
The company’s debt has become increasingly harder to manage since interest rates have risen since early 2022, reports TheStreet.
Joann’s quarterly interest expense ballooned to $28 million in October from $22 million exiting January 2023.
The company’s financial situation is a major reason its shares have dropped 85% in the past year to $0.51 per share.
“A Chapter 11 bankruptcy could provide Joann with wiggle room necessary to reshape its business and better align costs with sales,” says the outlet.
“Retailers often seek out Chapter 11 bankruptcy protection to restructure because it gives them the necessary cover to renegotiate debts with lenders and landlords, exit leases, and close stores.”
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A clothing retailer now makes a painful decision to close all stores after the company filed for Chapter 11 bankruptcy protection.
Soft Surroundings filed for Chapter 11 bankruptcy protection in September 2023.
And at the time of its initial filing, the women’s clothing chain operated a total of 44 stores in 24 states.
The company entered bankruptcy with an agreement in place to sell its brand to Coldwater Creek.
“Soft Surroundings has secured $18 million in debtor-in-possession (“DIP”) financing from Gordon Brothers, subject to court approval, to enable business continuity.
The DIP will enable the Company to continue to operate the business and meet its financial obligations, including the timely payment of employee wages and benefits without interruption, vendor payment for goods and services received on or after the filing date and other commitments during the restructuring,” the company said in a press release.
The company said that the new owner planned “will continue ongoing direct-to-consumer and e-commerce operations.”
It did not specifically say that Coldwater Creek would close all of its stores, but it was implied that Soft Surroundings would live on only as an online brand, reports TheStreet.
Soft Surroundings began as a catalog business before opening stores in 2005.
At its height, the chain operated as many as 70 retail stores, but the Covid-19 pandemic, like many others, affected the business significantly.
Coldwater Creek always intended to close Soft Surroundings’ brick-and-mortar locations, and those shutdowns have now been completed.
The chain slowly closed its stores over the course of a few months finishing the process at the end of February.
“Our commitment to our stakeholders has never wavered as we meticulously evaluated the best path forward and are welcoming this next step to financially secure a bright future for Soft Surroundings.
This will allow us to adapt, restructure and emerge more resilient, ensuring the longevity of the beloved Soft Surroundings brand for our customers and partners,” said Soft Surroundings Executive Chair Bridgit Lombard.
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Also Read: Another Mall Clothing Retailer Now At High Risk of Bankruptcy
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